Sell your medical practice – Accurate Financial Data & Practice Metrics are Vital Signs
If you’re ready to sell your medical practice, you need to get ready to sell you medical practice.
What exactly does that mean?
That means that you need to collect all of the important data and figures concerning your practice and organize them so that a buyer can effectively review them. There are several types of information and documents that you need to locate and prepare. An experienced business advisor like Andrew Rogerson can help you with this and sell your medical practice successfully.
Organize three years of financial statements and an “LTM” selling your medical practice
One of the most important pieces of information you need in order to sell you medical practice in California is a collection of financial statements. These financial statements will give prospective buyers present an accurate picture of the financial performance of your practice. Usually, sophisticated buyers of a medical practice will ask to see three years of tax returns, P&L (profit-and-loss) statements, and balance sheets (which show the medical practice’s assets and liabilities).
It’s not uncommon for someone or an entity seeking to buy a California medical practice to also request a P&L statement for the last 12 months (known as the “LTM” period or the trailing 12 months, a “TTM.”). Obviously, buyers want to see as much detail as they can, so supply them with all available line-item detail from your financial statements. In addition, your detail should include breakdowns by location if your practice has multiple office locations.
For instance, some clinics aim to achieve 20% to 35% operating margins of profitability from each location, which should be laid out in this information.Other clinics have transitioned the front door of their clinics to an online presence, so new patient acquisition metrics and performance, as well as your web patient acquisition strategy should be explained.
One example of the benefits of employing a professional team is hiring a good accountant or CPA. He or she will help make certain that you have accuracy in your financial statements and other reporting. He or she, along with an experienced business broker like Andrew Rogerson, can also spot potential pitfalls and suggest adjustments to your financial statements to make your practice more valuable in a potential sale. Along the same lines, you should identify any personal, non-operating, or discretionary expenses that may have been listed as a business expense for tax purposes or for other reasons.
These types of expenses wouldn’t be incurred by a buyer after a transaction and should be “added back” to the bottom line. Andrew says that his adjustment will make your it more profitable and more valuable to a buyer whom you’re looking to sell your medical practice to. These discretionary expenses may include entertainment expenses or even “one-time,” or “non-recurring” expenses, like EMR roll-out costs or one-time legal fees.
Know your patients.
Another key metric for you to understand and share with a prospective buyer is statistics on the patient flow of your practice and your tracking methods. You should tap into your CRM software and be ready to discuss annual, monthly, and daily patient volumes, visit and procedures counts, and operating metrics.
Likewise, with multiple clinics or office locations, you should present data by location. Andrew can help you with information about the type of medical services and treatments that are offered by competitors within an effective target area (ETA) and how your medical practice measures up.
Look at your liabilities, contracts, and leases.
Andrew will tell you that in his experience, most buyers will want to structure the sale of your medical practice as a purchase of assets, rather than a purchase of stock.
With an asset transaction, the seller is still under an obligation for all of the existing contracts after the closing, unless you either terminate them or assign them to the buyer. You and the buyer will need to review each of your medical practice’s contracts to determine those that the buyer will assume and those that will be your responsibility for continuing or terminating. Chief among these contracts is any property leases. The office building lease is vital and must be assigned, since the buyer can’t operate the practice without it.
In addition, in an asset purchase transaction, buyers typically won’t assume the major liabilities of the practice they’re acquiring, like bank loans, credit lines, and leases on the office medical equipment. Part of the calculation of your estimated net proceeds from a potential sale should include all of your outstanding liabilities and the cost of paying them off at closing.
Andrew Rogerson serves clients with medical practices throughout Southern California and Northern California including areas like San Diego and Orange Counties, the Los Angeles metro area, the California Central Valley, San Francisco Bay Area, Sacramento County, Coastal California, and Sierra Nevada.
Andrew can help you with organizing your medical practice information so that you can best promote your business to prospective buyers. Take the time to speak with Andrew about how sell your medical practice, and visit our website Services. Contact Andrew via email or call him at (916) 570-2674.